PFM Knowledge Sharing, Part 6: Implementing the IFMIS class=

PFM Knowledge Sharing, Part 6: Implementing the IFMIS

Posted on in PFM

This is part 6 of the 9 part series on PFM knowledge sharing.

FreeBalance provides a Commercial Off-the-Shelf (COTS) IFMIS suite that is used in many countries around the world. We hope that the following is sufficiently objective to be of value to you.

Public Financial Management practitioners have provided many details to how Integrated Financial Management Information Systems (IFMIS) should be implemented. In general, the PFM community believes in the notion of “good practices” rather than “best practices”. That is because practices tend to be better depending on the country context. However, if there is a “best practice”, it is in the sequencing of IFMIS implementations. Practitioners believe that risks can be mitigated with a phased approach of implementing IFMIS modules and rolling out across government organizations.

Notes

Phased Roll Out

  • Virtue to sequencing. (Dorotinsky)
  • Need to be done in bits. If do everything at once, becomes confusing and people lose interest. Commitment from other people will slide with big projects. (Sottie)
  • Implementation strategy must be phased so that benefits occur over time and have to ensure interim arrangements facilities financial continuity, control and reporting. (Seed)
  • The entire FMIS does not need to be acquired at once. (Osler)
  • Need to “think smart” and not acquire all functions are once. (Osler)
  • Many times, it is better to begin reform with a manual system before computerizing. (Osler)
  • Should start with core modules first. (Osler)
  • Start with the implementation of foundation infrastructure and undertaken at a pace that will ensure that users effectively cope with new technologies, methods and processes. (Points)
  • Sequencing (core first) required. (Myers)
  • Core system is the backbone for additional modules like HR, Debt and Audit. (Myers)
  • Should implement at pilot sites, institute change management, training end users then replicate to other sites. (Myers)
  • Use a gradual and flexible process. (Acosta)
  • Should reform core applications first then work on civil service reform. (Myers)
  • With a high degree of technical complexity – should focus on specific functionality at once. (Dorotinksy)
  • High risk to implement too many components at once. (Dorotinksy)
  • All of the major work and most of the problems happen in the first site. (Farooq)
  • Ideas of 6 month cycles for functionality rollout. (Dorotinsky)
  • Should start with Budget Execution and Reporting – not Budget Planning – especially is there no benchmark. (Symansky)
  • The “first things first” approach rather than the “big bang”. Certain reforms and the ways these are sequenced can be much different. In the case of PFM reforms, governments learn from each other. We need more efficient international learning so that countries can more effectively understand what works and why it worked. Need to separate good principles from fads in PFM reform. Successful PFM reforms require a set of enabling conditions. (Ruffner)
  • Realistic expectations and a gradual approach are required for effective reform. Reforms are medium term and practitioners cannot expect immediate changes. Governments need to reflect on results to show improvement. Rules need to be simplified to be more effective. (Alvarez)
  • Seen a transition from “big bang” to more customized reforms. (Dorotinksy)
  • There in no golden rule for every situation, but there are many case studies about what does not work. A good accounting system must be available for any reform to be successful. Many reforms are thrust on a county that works at first, but eventually fail because of a lack of political will. Countries need to take leadership over reform programs. There are many interdependencies among reform programs. (Vani)
  • Compared reform to making an excellent wine. The notion of “quick wins” is consultant lingo that is very attractive to politicians. Take reform short cuts with caution. Getting the data right is unrewarding work but is essential to reform. (Cangiano)
  • It is critical to understand what the country problem is. That way, the country understands the need. She believes that budget planning is not best first step. Cash management and expenditure forecasts are a more important first step. Monitoring and reporting, procurement and other reforms require accounting systems as a prerequisite. (Trimble)
  • Countries should start with the basics. Legal reform is required before embarking on public financial management reform. She recommends a top-down approach, big picture to small picture, beginning with strategic planning before executing the reform. The “big-bang” approach should be avoided. Often, these projects are lead by donors and not the government. Coordination among donors has become difficult because there are so many multi-lateral and bi-lateral donors. Donors are moving to aid harmonization, yet there remains inconsistent advice among donors. (Spietzer)
  • The Government of South Africa has adapted practices from other countries to create a Financial Capability Maturity Model that has been rolled out through the national government. There are plans to roll this out across all governments. (Nomvalo)

The South African experience showed that the following elements were critical for successful PFM reform: (Nomvalo)

  • Focus on addressing the country’s problem
  • Implement a legal framework that underpins the reform
  • Provide a clear definition of roles
  • Engage in broad consultation
  • Set clear expectations for reporting
  • Sustain political will with government
  • Provide a clear vision
  • The multi-year approach may have enabled this continued reform despite recent conflicts that affected Georgia. (Grewe)

Implementation Success Factors (Parry)

  • Least amount of customization (like Malawi and Sierra Leone), donors without a long term view and procurement of IFMIS should have the entire cost, should have accountants involved in designing the RFP.
  • Change and train. Some situations there is no civil service to speak of. Huge resistance to change. Many people are suspicious that the automated system can work because they can’t see it, suspicious of vendors – Microsoft is stealing our data. Capacity training: software, functional PFM, IT basic, system management. Users don’t know about e-mail spreadsheets and word processing
  • Political will to change, Malawi was self-funded, but there can be incentives after the system is installed, funding through HIPC, PEFA, MCC goals. Without transparency but a free press, enables anyone to accuse of corruption but government has no way to prove one way or another.
  • Put the basics first: legal framework (rules and regulations), control framework (checks) and reporting framework (what is reported to whom)
  • Managerial issues : Change management and related communication – have ownership by the government, transparency in decision-making, sustainability of the project in the long-run
  • Technical issues: Robust identification of user requirements (cost too much to redesign if did not include user requirements), robust pilot testing: doing 6 pilots
  • Challenges: Local resources involvements, PMO structure (change IT and functionality teams), sustainability of working group, selection criteria of the working group (right person for the right job), incentives (rewarding mechanism)
  • Need to diagnose system, need to analyze it, people, functions, control environment, consider the experience of other countries, hardware and software that was successful
  • Legal and political framework: Need to have the appropriate leader and the supplier, need to use a prototype, important to see what results as the system is being developed
  • Everyone must be trained so that the system can be sustained
  • Continuous training
  • Need to modernize the technology platform
  • Robust platform that provides growth
  • Must be flexible to adapt to legal changes and have the resources to maintain the experience
  • Need to understand the cost
  • System must be integrate all systems for public management
  • Need for useful reports – real accountability
  • Must show all fiscal transfers and gain confidence in citizens and improve results.

Issues and Reasons for Sequencing (FISC)
Challenges to Overcome:

  • Time to implement
  • Associated costs
  • Might not matter what is best, may be mandated
  • Overlapping tasks and timelines
  • Political resistance
  • Change in government administration
  • Need or lack of supporting policy
  • Dependency from phase to phase is not linked to success

Ways to overcome challenges:

  • Simplify to the level of benefit, associated risk, risk mitigation to politicians
  • Create capacity building group to support culture change and project roll out
  • Breakdown tasks in milestones
  • Small wins! Proof points.
  • Invest in civil servants, sell politicians on ideas.
  • Functional people should drive project, not IT.

Steps for Sequencing (Nummy)

Phase 1 – How Much Money Are We Spending?

  • Single Account Treasury
  • Unified budget
  • Eliminate extra-budgetary accounts
  • Customs and tax
  • Organic budget Law
  • Commitment accounting

Has had more discussion about the Single Account Treasury than any other topic. issue that bank accounts are used as control, yet there is often untouched funds, this does not mean that a government has one account in one bank, it is a question of central control, biggest issue at first is “cash rationing”, donors often get in the way, for example, GFS is “government financial statistics”, not designed for budget or accounting

Phase 2 – What Are We Spending On

  • Unified accounting classification
  • Unified chart of accounts
  • Accounting standards
  • FMIS
  • Macro-economic forecasting
  • Multi-year budgeting
  • Cash management
  • Debt management
  • MTEF
  • Auditing.

3 – Why Are We Spending This Money

Program definition

  • Further refinement of chart of accounts
  • Development of analytical capacity
  • Greater explanation of spending in public documents
  • Performance budgeting
  • Decentralization

Decentralization is a fad promoted by big donors to the detriment to many countries. The definition of decentralization differs. Many donors think that this is about full operational control at the local level rather than what it should be: local decision-making but central operational/budget control.

Idea of pushing revenue authority to the local governments does not work.

Phase 4 – How Are We Spending Money

  • Procurement
  • Civil Service Reform
  • Human Resource Management
  • Budget Support
  • Many times, the new procurement law looks good on paper but does not reflect how procurement actually works.
  • In reality, the United States does not have good procurement or civil service management.
  • Budget often does not reflect what the country is really doing so can give the impression that certain sectors have little activity, but this could be from classification or from not reflecting the aid budget.
  • In the future, budgets will be about outcome priorities.
  • Often the best approach is to begin thinking about things. A balanced scorecard requires measures for success. Starting the process of reform begins by thinking about it.
  • Great disservice to force governments to full accrual accounting. What is needed is to account for commitments, obligations and futures. Assets, contingent liabilities etc. are not important.
  • Governments should operate at modified cash or modified accrual.
  • Most Difficult Challenges to Overcome
  • Resistance to closing Ministry bank accounts
  • Donors inability to provide timely and usable information on their activities
  • Getting beyond cash rationing
  • Performance measures

Implementation Phases (FISC)
Showing relative levels of importance

1 Phase 1

1.1 FMIS (8)

1.2 unified chart of accounts (8)

1.3 unified accounting classification (7)

1.4 cash management (6)

1.5 capacity building (6)

1.6 accounting standards (3)

1.7 macro-economic forecasting (0)

1.8 multi-year budgeting (0)

1.9 debt management (0)

2 Phase 2

2.1 capacity building (8)

2.2 further refinement of the COA (6)

2.3 performance budgeting (6)

2.4 project accounting (6)

2.5 MTEF (5)

2.6 decentralization (4)

2.7 auditing (2)

2.8 greater explanation of spending in public documents (2)

2.9 Development of analytical capability (0)

3 Phase 3

3.1 Procurement (11)

3.2 Civil Service Reform (10)

3.3 Human Resources Management (8)

3.4 capacity building (6)

3.5 budgetary support (4)

3.6 transparency interface (0)

4 Phase 4

4.1 single account treasury (10)

4.2 commitment accounting (9)

4.3 capacity building (9)

4.4 organic budget law (5)

4.5 unified Budget (5)

4.6 eliminate extra budgetary accounts (3)

4.7 budget plan (1)

4.8 customs & tax (0)

Roll Out Stages (Points)

1. Assess Current Environment

  • Review current processes
  • Review current systems
  • Identify opportunities for improvement

2. Develop Target Design

  • Development conceptual framework for target design
  • Develop detailed target design

i. Processes
ii. Systems
iii. Organization
iv. Cluster
v. People

  • Develop target design implementation approach

3. Implement Technology

  • Define technical infrastructure
  • Identify Infrastructure requirements
  • Define functional requirements
  • Define technical requirements
  • Evaluate software
  • Procure hardware and software to support infrastructure
  • Establish infrastructure

i. Development
ii. Testing
iii. Production

  • Package implementation

i. Identify modifications to package
ii. Identify modifications in legacy systems
iii. Define interfaces with legacy systems
iv. Prototype screens, reports and processes
v. Define data model

  • Prepare detailed design specification
  • Plan data conversion
  • Code and Unit test
  • Conduct system test
  • Convert data
  • Implement software
  • Conduct User acceptance test

4. Prepare for change

  • Identify training needs
  • Assess Organizational impact
  • Develop training materials
  • Develop policies and procedures
  • Train users
  • Transition

5. Develop transition plan

  • Develop continuous improvement framework
  • Transition to new environment

The reform model for government (Woods)

  • Planning reforms includes policy objectives, strategic planning, Medium Term Expenditure Frameworks (MTEF) and the annual performance budget
  • Operational and management reforms includes procurement, personnel management assess, working capital and internal controls
  • Accountability and oversight reforms include oversight by the Supreme Audit Committee (SAI) and the Public Accounts Committee (PAC)

Post Implementation Changes (Peterson)

Need for the financial system to adapt over time such as:

Step 1

  • Line item budgeting
  • Single entry bookkeeping
  • Cash accounting
  • IT (Spreadsheets)

Step Two

  • Cost center budget
  • Double entry bookkeeping
  • Modified cash accounting
  • IT (Relational databases, LAN)

Step Three

  • Multi-year budget planning
  • Performance budgeting frameworks
  • Financial statements
  • Management accounting
  • IT (international standards, LAN/WAN)

Detailed Sequenced Step

Needs Analysis

Many projects focus on the needs of the Ministry of Finance. It should also focus on the needs of line ministries in order to be successful. (Osler)

Need to collect: (Myers)
– status of budget/treasury functions,
– roles and responsibilities,
– IT adequacy, management, experience
– Chart of Accounts – does it meet international standards
– Public contracting
– Data reliability and integration
– Public Expenditure Financial Accountability (PEFA) information

Business Process Re-engineering

  • BPR = Blood Pressure Reduction (Peterson)
  • Not an IT or accounting reform. Should be in support of comprehensive (BPR) reforms. (Myers)
  • Harder to repair an existing system than a “green field”, so there is a need for BPR. (Myers)
  • Governments tend to fail to do proper change management. Accountants are generally not good communicators. Other ministries, departments etc. need to be involved in creating requirements. Training should include managers. (Parry)

Chart of Accounts

  • The Chart of Accounts (Transaction Coding) and business processes are the most important starting point. Once ingrained, it is hard to change the COA. (Osler)
  • Should meet international standards. (Myers)
  • COA the most important thing. It must support standards and roll-up to GFS, MDG and PRSP. “Sierra Leone has one of the most beautiful charts of accounts” (Kamaray)

Role of Reform

  • Challenges remain “right sizing reform” (Dorotinsky)
  • Technology without policies and procedures will go nowhere. Issues that government agencies operate differently from IT plans. Electronic government has nothing to do with just having a web page. Discrepancy with the short term politician view and long term strategic plans. (Garcia-Gosalvez)
  • There are different motivations for reform. Nevertheless, this creates a virtuous circle in theory that improves economic growth, promotes prosperity, stability and peace. (Ruffner)
  • PFM reform should be anchored on strategy rather than instruments. (Nummy)
  • The reform pace should be driven by the culture. (Nummy)
  • Successful reform strategies are calibrated to risks and dynamics of national system
  • Mobilize all levers on behaviour – formal and informal (Ruffner)
  • Need to understand the legal and institutional framework for reform to be successful. (Myers)

Diagnostic Tools

  • There are negative consequences of using diagnostic tools like PEFA. Technical assistance should be led by practitioners. (Ruffner)
  • The PEFA tool was effectively used for government self-evaluation. (Orlando)
  • PEFA was agreed to be an excellent tool for self-assessment, but not necessarily for external assessment. (Nummy)
  • Use the Public Expenditure Framework Assessment (PEFA) to identify weaknesses in the current PFM system and help set priorities. (Dorotinsky)
  • Government needs to be in the driver’s seat for PEFA to be effective (Brumby)
  • PEFA helps identify root causes of problems (Brumby)
  • PEFA plays a big role at the World Bank for decisions (Brumby)
  • Open Budget index similar to PEFA (Gomez)
  • Need for independent audit or (Gomez)
  • PEFA was created because it was difficult to determine whether Public Financial Management (PFM) systems were improving results. The PEFA Framework consists of 31 indicators that can help to improve the performance of PFM systems from budget preparation to audit. International public sector standards from the International Public Sector Accounting Standards Board ( IPSAS) and the International Standards of Supreme Audit Institutions (ISSAI). The Framework has been used by over 90 governments with an increase in sub-national evaluations. (Ronsholt)
  • MCC: although imprecise, the expression in a scorecard method has received significant currency in countries. For example, scorecard results are often used by business to determine whether to invest in countries.(Kelly)

ICGFM Surveys

How important is the PEFA tool in preparing a PFM Reform Plan?

  • Not at all: 5%
  • Not important: 0%
  • Neutral: 15%
  • Important: 56%
  • Very important: 27%

How useful is the PEFA tool as a self assessment tool?

  • Not at all: 0%
  • Not useful: 3%
  • Neutral: 13%
  • Useful: 63%
  • Very useful: 23%

References

Topics

Contact